Scoring your Credit - How's your FICO?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, each agency uses the following to determine your score:

• Credit History - How long have you had credit?
• History of Payments - Do you have any payments later than 30 days?
• Your Credit Card Balances - How many accounts do you have, and how much do you owe on them?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers probably find their credit scores falling above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is based on your lifelong credit history, it's very difficult to make a significant improvement in the score with quick fixes. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my FICO score?

To raise your credit score, you must get the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO credit score, offers credit scores on myFICO.com. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about credit scores? Call us at (203) 729-6681.